Pennsylvania starts 90-day tax compliance program


The Pennsylvania Department of Revenue (Department) recently announced a 90-day Voluntary Compliance Program (Program) for any businesses that have inventory or store property in Pennsylvania, but are not registered to collect and remit Pennsylvania taxes.1 The Program allows taxpayers to resolve their outstanding tax liabilities with a limited lookback period and penalty relief when the business becomes compliant.




Operation of program


The Program will run until May 8, 2021. Businesses who participate in the Program will not be liable for taxes owed prior to Jan. 1, 2019, and will be given penalty relief for any non-compliance for past due tax returns not filed and taxes not paid.

To determine their eligibility for the Program, taxpayers are required to complete the Department’s Physical Presence Business Activity Questionnaire (BAQ). The BAQ asks taxpayers about their business activities in the state, whether they are already registered with the Department, whether any property or inventory is stored in the state, whether sales are made directly or through a marketplace facilitator, applicable marketplace facilitator information, and the amount of gross and taxable sales made into Pennsylvania during 2019. After reviewing the activities reported by the business, the Department will then contact the business to discuss how they may become compliant with their tax obligations.

The Program requires the business to register for applicable taxes, file any past due tax returns, and remit payment of taxes in order for penalties to be abated. The abatement of penalties is conditional on the business remaining compliant with the Department. Concurrent with the Program’s launch, the Department is sending letters to potentially applicable online sellers notifying them about the Program.






The Department’s Program provides an opportunity for any online retailer – regardless of size, entity type or location – that may have inventory located in Pennsylvania to become compliant with various state taxes. The Program is notable for its limited 90-day period and applicability to all tax types. With a limited lookback to Jan. 1, 2019, the Program’s terms are more favorable than the typical three- to five-year lookback periods offered under the Department’s normal voluntary disclosure program.2

The Program is intended for non-Pennsylvania based online retailers who may have had inventory stored in a marketplace facilitator’s distribution or fulfillment center located in the state during years preceding the Wayfair decision. In the post-Wayfair era, nearly all states have imposed sales tax collection responsibilities on marketplace facilitators such as Amazon. Under the Fulfilled by Amazon (FBA) program, retailers selling through Amazon’s online marketplace often retain title their product as Amazon transports it between distribution and/or fulfillment centers so that it may be delivered to the customer more quickly. Under this arrangement, inventory may end up in an intermediate state without the seller’s knowledge, giving retailers physical presence in a state where they may not be registered to collect sales tax. As a result, states have begun asserting nexus and sales tax obligations on businesses having inventory in their states during pre-Wayfair periods.

In contrast to Pennsylvania, California has taken a more aggressive approach in assessing businesses for uncollected taxes on sales made through the FBA program if they had inventory stored in Amazon warehouses throughout the state. Small businesses have begun challenging such assessments in federal court. In Online Merchants Guild v. Maduros,3 an e-commerce trade group filed a lawsuit against the California Department of Tax and Fee Administration (CDTFA) for unlawfully seeking payment of unpaid sales taxes from out-of-state sellers who participated in Amazon’s FBA program before the enactment of California’s marketplace law in 2019.4 The sellers argue that Amazon should have collected and remitted tax on these prior sales, and that California’s effort violates the Due Process Clause of the U.S. Constitution in addition to the Internet Tax Freedom Act (ITFA). In response, the CDTFA argues that the sellers had inventory nexus during prior years, thereby establishing physical presence in the state.

In a similar case, Rubinas v. Maduros, an Illinois-based FBA seller filed a lawsuit against the CDTFA after the agency froze the business owner’s bank account in demanding payment of several years’ worth of unpaid sales tax on account of having inventory located in the state.5 The seller argues that the CDTFA’s sales tax assessment violates the ITFA, the Due Process Clause and the Commerce Clause by burdening small businesses in the interstate economy. The Rubinas litigation is notable because it illustrates the impact of such tax obligations on small businesses who may not be able to pay the liabilities due. Such lawsuits emphasize the ongoing complexities and difficulties associated with the collection and remittance of sales taxes for small business marketplace sellers across the country.

Signifying a tamer approach to marketplace sales than California, Pennsylvania is encouraging out-of-state retailers to voluntarily come forward, disclose their business activities in the state and register for applicable taxes at an accelerated pace. By offering a limited lookback period and penalty abatement in exchange for filing returns and paying tax, the Department is providing FBA sellers an incentive to become compliant. Participation in the Program may speed resolution of such issues for potentially impacted businesses as well as provide certainty for prospective filing obligations.6

However, the Department’s letters to identified businesses suggest that failure to participate in the program and register with the state may result in additional enforcement actions and the forfeiture of penalty relief and limited lookback provisions offered under the program. In response, the Online Merchants Guild filed a complaint in federal court on February 26, seeking declaratory and injunctive relief.7 Similar to the California litigation, the lawsuit alleges that the Department’s actions violate the Due Process and Commerce Clauses, in addition to the ITFA. Pending the outcome of the litigation, businesses that are contacted about the Program and fail to participate within the 90-day period may be liable for taxes, interest, and penalties for an unlimited lookback period should the Department assert physical presence nexus under future audits or assessments.



Voluntary Compliance Program for Retailers with Inventory in Pennsylvania, Pennsylvania Department of Revenue
2 The Department offers a three-year lookback period for non-corporate taxes including sales tax and personal income tax, and a five-year lookback for corporation taxes including corporate net income tax.
3 No. 2:20-cv-01952, U.S. District Court for the Eastern District of California, filed Sept. 29, 2020.
4 In 2019, California approved legislation requiring marketplace facilitators like Amazon to assume responsibility for collecting and remitting sales tax due on third-party sales facilitated through their online marketplace. A.B. 147, Laws 2019, CAL. REV. & TAX. CODE §§ 6042, 6043; CAL. CODE REGS. tit. 18, § 1684.5.
5 No. 21-CV-96, U.S. District Court for the Northern District of Illinois, filed Jan. 7, 2021.
6 In addition to Pennsylvania state taxes, businesses may also consider the local tax implications of having inventory located in specific Pennsylvania municipalities. Approximately 275 local jurisdictions, including Philadelphia, impose gross receipts-based taxes for the privilege of doing business in the locality, which may include having property located in that locality.
Online Merchants Guild v. Hassell, No. 1:21-cv-00369, U.S. District Court for the Middle District of Pennsylvania, filed Feb. 26, 2021.





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